German retail winners & losers in 2012
However, this does represent a pretty substantial Yule-tide read. Also, it would be a shame to take our English-speaking readers away from their healthy Christmas pudding, beautifully behaved children, and delightful in-laws.
Therefore, German Retail Blog summarises and interprets the most compelling events of 2012 so that our readers have more time to devote themselves to the joys of the festive season.
The year began with a big surprise. Schlecker, hitherto Germany’s and Europe’s largest drugstore operator by sales, was obliged to file for insolvency.
Few ever loved the business model of founder Anton Schlecker, and company critics were legion. However, the sheer speed of the final fall from grace was nothing less than breathtaking.
But it's an ill wind that blows nobody any good. Like the year before, 2012 held rich rewards for insolvency administrators.
Also, rival drugstore operators dm and Rossmann have clearly profited from Schlecker’s demise, while supermarket multiple Edeka and Aldi have upgraded their health & beauty assortments.
Metro delights consultants
Much to the profit of consultants, Metro Group continued to lurch from crisis to crisis. Germany’s largest retailer/C&C operator by sales has been desperately trying to restructure.
New CEO, Olaf Koch, has inherited a series of building sites from predecessor Eckhard Cordes. Troubles kept piling up at Metro Group’s “real,-” hypermarkets, "Metro/Makro C&C stores", and consumer electronics subsidiary Media-Saturn.
They culminated in lower credit ratings and the relegation of the listed company from the main “Dax” stock index to the mid-cap MDAX.
Finally, at the end of November, Metro Group at last found in Auchan a buyer for its “real,-” hypermarkets in Eastern Europe.
But Metro no longer talks publicly about selling either “real-“ or its “Kaufhof” department stores in Germany. This is far more likely to be for the lack of a buyer than due to any fervently-held belief in a viable future for these two subsidiaries.
Also, at the end of November, Haniel, Metro’s principal shareholder, announced its intention to reduce its 34.24 per cent stake in the group to 30.01 per cent over the next 18 months in order to reduce net indebtedness.
This opens up a whole new ball game because Haniel and the Schmidt-Ruthenbeck grouping will no longer have majority control of Metro.
What could be Metro’s ultimate fate? Could Walmart step in? Or will the Düsseldorf-based group be split one day into the component parts which some have valued at more than the sum of the whole?
Berggruen, the surgeon
Meanwhile, Nicolas Berggruen, in a sign that surely does not bode well for the German department store segment in general, has been busy making cuts at Kaufhof-rival Karstadt.
The US-German financial investor and his adlatus Jared Bluestein allegedly continue to pressurise Karstadt CEO Andrew Jennings on liquidity. If true, this is strange medicine to apply to a former High Street retail icon suffering from chronic underinvestment.
Like a fallen angel, Berggruen once expressed interest in buying Kaufhof, but insiders now doubt that he could finance the deal.
This year has also been difficult for Germany’s hard discounters and they have reacted by concentrating on their home market.
Penny, Rewe Group’s problem child, continues its struggle to revamp a chronically underinvested store base. The jury is still out as to the role of a number four in the segment.
Even Germany’s top discounters, Aldi and Lidl, have experienced a blip in growth over the last two to three years.
True, the financial and economic crisis has pushed ever larger swathes of the middle classes into discount stores throughout Europe, including Greece, Spain, the UK, France, and even Switzerland.
However, macroeconomic uncertainties are such that Aldi Süd & Aldi Nord (Aldi South & Aldi North) as well as Schwarz Group (Lidl, Kaufland) have taken expansion into any new countries off the agenda until the political situation has stabilised.
Instead, both companies are concentrating on modernising their local store bases. This is surely wise when supermarket operators Rewe and Edeka, which has just announced the sale of its 25 per cent stake in Netto Stavenhagen as per the end of this year, have upgraded their offer.
Both Aldi North and Aldi South have followed Lidl’s lead by integrating top brands into their assortments. So you can now buy “the real thing” (Coke) at Germany’s best-loved retail brand.
Market pressures have also ushered in what surely must be the ultimate phase of concentration in German retailing.
Alpine bathers & US entrants
These have enticed the Zurich arm of Swiss retail giant Migros to buy struggling regional multiple Tegut. With its organic assortments, Tegut is surely a local hero of sorts, but the Swiss have plunged into shark-infested waters.
For better or for worse, financial investors now control Douglas Holding and DIY group “Praktiker”. 2012 was clearly also a year of private equity.
It will be interesting to see whether US investor Advent International behaves like a “barbarian at the gate” after paying an estimated €1.5bn to gain control of family-run Douglas.
Equally intriguing will be to watch whether the Viennese de Krassny family can redeem the tarnished image of the financial industry by revamping troubled Praktiker.
Creative destruction goes cyber
Nearly all bricks & mortar retailers have come under pressure from growing internet sales. In fact, online operators, who may be regarded as the big winners of 2012, are also making life hard for an increasing number of specialist retailers.
It is not too dramatic to claim that those bookshop and consumer electronics retailers who have not also built a successful online arm now face a life and death struggle.
According to the more extreme estimates, up to 60 per cent of multi-media assortments could soon be sold via the internet. And who would have thought only ten years ago that it would become completely normal to order one’s shoes online?
Internet shoe seller Zalando has already boosted annual returns to €500m. If you add fashion sales, the “shoe-ting” star will probably even have crashed through the €1bn barrier this year.
Even though Zalando still hasn’t broken even yet, its dynamic revenues growth is stealing market share from its bricks & mortar counterparts. Görtz, for instance, has admitted that internet competition is forcing it to close up to 30 traditional stores.
Pet (food) shops are also beginning to feel the pressure. Online only makes around 6 per cent of total sales, but its overall market share is growing rapidly. Clearly, what was once a dachshund is rapidly becoming a St. Bernard.
For instance, zooplus.de probably made €320m in revenues this year and might already have broken even in terms of operating profit. Online operators are even forcing pet shop market leader Fressnapf to boost its own e-commerce activities and to mesh these even more closely with its physical store base.
The rising share of online pet product sales also affects classic food retailers who still account for two-thirds of the pet market. They are losing customer frequency.
Amazon's long reach
Of course, the 800-pound gorilla in the cage is Amazon. Its German subsidiary now offers “everything under one roof” from DVDs and books to deodorants and perfume. In fact, the US giant opens a new brand shop virtually every few weeks.
Whereas even successful drugstore operators Rossmann and dm have not been particularly ambitious with their online activities to date, Amazon has no such inhibitions. In fact, the Seattle-based company already delivers most of the big names, whether Pampers, Gillette, Braun or L’Oréal.
As if Amazon wasn’t enough to worry about, major brand manufacturers are also experimenting with direct sales online. Increasingly, they are teaching German retailers their power on the High Street (cf. Nestlé’s "Nespresso" shops).
Market researchers at Kantar estimate that food & fmcg sales will grow three times faster online over the next five years than at big box retailers.
This is surely credible given the increasing popularity of smart phones and tablet PCs. One trade body recently estimated that the share of Smartphone users who buy online grew by around 9 per cent over the last year.
Due to complicated logistics and low margins, food still only generated €400m in online sales in 2011. But even here online has been making inroads.
Pressure on hypermarkets
Hypermarket operators such as “real,-”, who were already suffering from ageing consumer bases and rising petrol prices, are feeling the pinch in a growing number of areas. These include lucrative non-food assortments such as clothing, electronics, home accessories, and health & beauty.
Even the percentage of fresh food sold online is growing – albeit from a still relatively small base. Operators such as myTime.de (Bünting), gourmondo.de and Lebensmittel.de already offer extensive assortments, and Allyouneed.com has formed a noteworthy logistics partnership with DHL.
Unlike Tesco.com in the UK, or LeShop.ch (Migros) and email@example.com (Coop Schweiz) in Switzerland, however, Germany’s online retail pioneers Tengelmann and Rewe have limited themselves to just a few cities to date. Only regional multiple Bünting’s web shop myTime.de offers national coverage
These may only be small beginnings, but some online acorns have shown that they can turn into some pretty big retail oak trees.
But now it is time to stop for we are getting our metaphors crossed when we talk of oaks instead of holly and mistletoe. So that was the year that was!
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